Blockchain encryption is not only the key technological innovation powering BanQu’s economic identity solution to extreme poverty — some enthusiasts claim it’s one of the most important computing innovations since the invention of the internet, and it promises to radically transform how we share information about value and transactions. So what is it, how does it work, and why is it so revolutionary?
WHAT IS THE BLOCKCHAIN?
In the simplest terms, blockchain is a distributed ledger, a public record that allows trustworthy anonymous transactions between two people who don’t know each other. It’s a secure, public, and transparent way of recording digital information about ownership and deals of any kind.
WHERE DID IT COME FROM?
Blockchain encryption was first conceptualized in 2008 by a mysterious person or persons who go by the name Satoshi Nakamoto. Nakamoto described the idea behind blockchain as the underpinning of the digital currency Bitcoin.
HOW DOES IT WORK?
This is where things get complicated. Leaving the details to the engineers and math whizzes, the key points for us ordinary folks to understand are:
1. Information about transactions is grouped together into “blocks.” Then some fancy math happens on the 1s and 0s that make up those blocks, which generates a unique identifier for that block. The way the math works, if you change anything about the data in a block, you end up with a totally different identifier — so it’s really obvious that you tampered with the block.
2. Blocks of transactions get chained together in chronological order, with each block getting linked up with the unique ID of the one before it — think of a stack of Legos. Now changing anything about any of the blocks in the whole stack is immediately noticeable because of the way each block incorporates the preceding block’s unique ID.
3. Copies of that chain get stored on thousands of different computers throughout the world, so there’s no one central spot where the chain lives.
4. When someone wants to add transactions to the end of the block chain, the majority of the participants in the network have to agree that the new block looks valid before it gets approved and everyone’s copies are updated.
WHY IS BLOCKCHAIN IMPORTANT?
By removing the need for powerful central intermediaries to authenticate exchanges of value, blockchain promises to provide a decentralized, peer-to-peer way to record all kinds of transactions. The transparency and lack of any middleman on public blockchain transactions could save the banking industry up to $20 billion a year in transaction costs, for example. But its potential goes way beyond banking. Voting, land registries, marriages, smart contracts that execute themselves when certain conditions are met, music payment and licensing, transparent supply chains — these are all domains where blockchain’s core information power could be transformative.
BanQu’s founder Ashish Gadnis believes that blockchain will change the world in the next 10 years.
But he’s not the only one who’s bullish about its potential. In an interview with McKinsey & Company, Don Tapscott, co-author of “Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World,” calls its implications “staggering … right across virtually every aspect of society.”
The financial services industry is, so far, taking the lead in exploring blockchain’s potential. The World Economic Forum predicts that by 2025, 10 percent of global GDP will be stored on blockchain technology. One survey expected financial and technology markets to invest $1 billion in blockchain in 2016. Blythe Masters, a former JPMorgan Chase executive who is now CEO of a blockchain startup, was quoted in the Financial Times saying, “You should be taking this technology as seriously as you should have been taking the development of the internet in the early 1990s. It’s analogous to email for money.”
Rachel is Conscious Company’s editor-in-chief, in charge of wrangling all the words. Before joining the CCM team, she worked at Backpacker and Wired magazines.